MARKET INSIGHTS
April 4, 2025
Shock and Awe
By 2X Wealth Group
Markets around the world are down today due to Trump’s unexpectedly punitive tariffs. These tariffs are feared to be inflationary and may cause a recession in the U.S. and abroad.
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Trump believes in fair trade and resents the tariff imbalances between the U.S. and other countries. He wanted to cut our trade deficit in half, and reciprocal tariffs alone were not enough to accomplish that goal. Apparently, the administration went country by country, subtracted exports from imports, and divided that number by 2 to come up with each country’s individual tariff level. Countries with large trade imbalances with the U.S., ended up with larger tariff levels. For example, Vietnam, ended up with a 46% tariff. Canada and Mexico which are our largest trading partners were exempt for goods covered by the USMCA trade agreement, and they did not get additional tariffs on top of the 10% already levied earlier this year.
Ramifications of the Trump Tariffs
  • GDP growth will likely slow by at least 1% in 2025, with the risk of recession rising. Some economists are now projecting a 45% chance of a recession.
  • Unemployment likely rises as growth slows. Oxford Economics thinks the unemployment rate could reach 5% in 2025.
  • Inflation will occur due to the tariffs raising the price of goods. According to Oxford Economics, inflation could rise to 4% in 2025. It is unclear whether this will be a one-time rise in prices or if inflation expectations could rise as well.
  • Stagflation (slow growth, high unemployment and high inflation) is a risk. We don’t think it will be like the 1970s, absent a shock like the oil embargo.
How We Expect the Federal Reserve to Respond
The Fed is between a rock and a hard place. They have two mandates – to promote full employment and keep inflation stable. Soon, those two goals may be in conflict with each other. If the Fed eases (lowers interest rates), they may cause inflation to rise further, but if they do nothing, they may allow the economy to weaken further, causing unemployment to rise.

We expect the Fed to be slow to act until they see more data. We believe they are currently more concerned about inflation and may not cut rates, running the risk of further slowing economic growth.
The Bitter and the Sweet…  Short-Term Pain for Long-Term Gain
The hope is that the ‘bitter’ in the form of tariffs and DOGE cuts will be offset by the ‘sweet’ of tax cuts and other business stimulus. The sharp market reaction to the tariffs should motivate Congress to get a tax bill completed. Congress could take the following actions to promote future growth and make the current pain worthwhile:
  • Extension of 2016 tax cuts
  • Cuts to the corporate tax rate
  • Corporate tax breaks on equipment spending and structures (possibly as high as 100% and retroactive to January 1, 2025.)
  • Tax breaks on tips, overtime, social security
  • Raising the SALT deduction from $10,000 to $25,000
Congress, in order to pass a budget, could consider tariff revenue as an offset to tax cuts – a concept promoted by Trump. This is unconventional and conservative deficit hawks may baulk as tariffs could be removed at any time.
The Upshot for the Economy and Markets
  • The Optimistic View - By making foreign goods expensive, helping companies grow with tax breaks, and reaping some tariff revenue, the US will bring more production back to our country. We will eventually see increased GDP growth and better jobs as a result of private enterprise investments in the U.S. economy.
  • The Pessimistic View - We get low growth, higher unemployment and higher inflation aka stagflation.
The Problem in Choosing Between the Two Views:
  • The unpredictability of President Trump and what he does next.
  • Do U.S. companies with all time high margins absorb all or some of the price increases?
  • How do U.S. consumers react to higher prices?
  • What is the extent of retaliation from other countries?
  • Are there buyers strikes from international consumers of U.S. products?
  • What are the effects of inflation on purchasing power?
our thoughts
It is important to keep in mind that this is not a banking crisis, financial crisis, bursting stock market bubble or a pandemic. Today’s stock market action is an anticipatory reaction to President Trump’s tariffs.

We believe in having clients appropriately positioned for their financial goals and able to withstand the ups and the downs of the stock market. To that end, we reduced equity positions in February where needed, and we rebalanced individual stock portfolios to companies that would perform in a slower growth environment. The next market move is uncertain and could be up or down depending on President Trump’s next proclamation and associated reactions. Panic is not an investment concept.  

Please reach out if you have specific questions, changing needs or want hand-holding.
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2x Wealth Group is a team at Ingalls & Snyder, LLC., One Rockefeller Plaza, New York, NY 10020.